FPIs will not get any relief from retro MAT

New Delhi: Not with standing the setting up of the Shah panel to study the government stand on minimum alternate tax (MAT), the centre is firmly against providing retrospective exemption to foreign portfolio investors (FPIs) on the same. Finance minister Arun Jaitley has taken the position that following the 2010 order of the authority for advance rulings (AAR), it’s next to impossible for the government to provide ret­rospective exemption to F­PIs from paying 20 per cent MAT on capital gains made from market operations.

“What FPIs are asking for is not relief on MAT payment. They want retrospective exemption on MAT, which cannot be done by the government since the AAR ruling does not allow this,” a top finance ministry official told FC. The government has taken the stand that exempting MAT retrospectively would be tantamount to a scam. “It’s also not possible since FPIs had inordinately delayed appealing against the authority ruling in 2012. That directive is in force. We cannot go against a ruling of the authority,” the official said.

Finance minister Arun Jaitley last Thursday set up an empowered panel headed by law commission chairman AP Shah to advise the government on the specific issue of MAT on FIIs. In a related developm­ent, the central board of direct taxes (CBDT) thr­ou­gh a circular issued on Mo­nday directed its field officials not to take “coercive ac­tion” for recovery of MAT demands already raised on FPIs.

CBDT asked its officials not to make fresh MAT-related assessments or issue fresh notices to reopen pending cases unless the cases are time-barred. While the latest circular is seen as a temporary reprieve for FPIs, the centre would reinforce its decision against ‘retrospective exemption’ after it gets the report from the Shah panel.

Rajesh Gandhi, a partner with independent consultancy Deloitte Hakins & Sells, said: “This (CBDT ci­rcular) is indeed a very po­sitive development. A nu­m­ber of FIIs which have not received notices so far have been quite concerned and anxious to know if and when they will receive a notice and how they should approach the matter given the uncertainty on the MAT issue.”

They would be relieved to know that no further notices will be issued till the (Shah) panel submits its report. “FIIs will now be keenly waiting for the panel’s recommendations. This also shows that the government is trying to be sensitive to taxpayers’ concerns,” Gandhi said. The IT department has issued notices to FPIs raising MAT demands of over Rs 40,000 crore on capital gains made through market operations before April 1 even as the overseas institutional investors have contested the issue at the Bombay HC.

In his budget speech, Jaitley had exempted FPIs from paying MAT on profits accrued from capital gains on transactions in securities with effect from April 1. “For future, we have already said FPIs need not pay MAT on capital gains. But, this cannot be turned into retrospective exemption,” the official added. Taxpayers, including foreign firms and FPIs had challenged the applicability of MAT in AAR.